Let us also assume that it has vendors, all of which do work monthly and all of which get paid monthly. Let’s also assume that in one month 25% of the homeowners paid assessments late – they paid the next month, and that all of the vendors were paid monthly. Below is how the income statement for this association would look using both methods of HOA accounting. As you can see, under the Cash Method of HOA Accounting it would appear that the association lost money in the first month, and made a profit in the second month. Using Cash HOA Accounting makes it difficult to see if income and expenses are as expected. The Accrual Accounting system assumes that all money will eventually be received, and all bills will eventually be paid.

HOA Demand Fees

This could lead to losing focus and moving even farther away from your goals than your HOA team was to begin with. Are you a new member on your HOA Board, working on figuring out the in’s and out’s of your Board duties? Or are you a seasoned HOA leadership veteran who would like to learn more about a new reporting system your HOA has implemented? Most importantly, are you looking to become a pro at reading HOA financial statements?

Board Budget Review

Using the cash basis, the association reports revenues when it receives them, not when it earns them. The cash basis accounting method does not include Assessments Receivable or Prepaid Assessments accounts on the Balance Sheet. Recording of expenses happens when the association pays for them, not when it incurs them.

• Board procedures may need to be changed to adhere to new laws, and homes with new owners could have out-of-date contact information that needs to be updated.
• Seeking professional assistance, when necessary, can further enhance homeowners’ understanding of complex financial data and ensure accurate interpretation.
• The Check Register should give the name of the entity paid, the amount, the date of the check, and the account number to which the check was applied.
• This method provides a more accurate picture of the company’s current condition, but its relative complexity makes it more expensive to implement.
• The balance sheet shows a snapshot of the association’s financial condition.

Top 4 Tips for Using an Integrated Banking System

Strong vendor relationships are essential for your association management company and the HOAs you serve. A lot of logistics and planning go into keeping the communities secure, safe, and clean. Choosing and retaining the right vendors can make a substantial difference in work performance, cost, and quality. Some sensitive personal information can be kept private, but in general, the more accessible and detailed the accounting reports are, the better. An HOA or management company gathers information in this database, which associations can use to maintain and expand membership, streamline monotonous tasks, and inform and engage members.

Most states have laws requiring non-profit organizations like community associations to keep comprehensive financial records and report them regularly to their Secretary of State or equivalent state department. If an HOA does not comply with state and local regulations by submitting accounting reports, it could have its “good standing” certificate revoked. No matter who prepares the HOA accounting reports, using the right software is pivotal. CINC’s accounting software offers integrated banking features and repetitive task automation. These tools increase transparency among board members, residents, and the management company through timely, accurate, and frequent HOA accounting reports. These assessments are therefore prepaid and still the property of the homeowner – and not of the association.

Bank Reconciliation Report

It lays the foundation for sound financial reporting, allowing members to track every dime spent or received. When analyzing a general ledger, check the income and expenses for consistency. Managing the finances of a community association is one of the most difficult, and most important, responsibilities of an HOA board of directors. The frequency of preparation may vary depending on state laws, community bylaws, and the size of the association.

You can update the electronic statements as frequently as required, so they give a more clear picture of each member’s actual current liability with the HOA. The common option that comes to mind is sending the HOA statement via email or post. However, in the long run, it can become difficult to keep hoa accounting track of the payment activity with both of these methods. Because even big expenses like refurbishing the swimming pool or the roofs can be planned in advance and covered under the reserve funds. Implement scalable software to give your team enough bandwidth to manage twice as many associations.

When an elected community member self prepares financial statements, make sure that there is a backup of all financial records. As a title professional, you should pay attention to the assets and liabilities when reviewing the balance sheet. Assess the types and amounts of assets and liabilities to gauge the association’s financial stability.

• The actions available for collecting overdue dues vary based on local laws and the HOA’s rules.
• Similarly, it should provide the differences between the actual income and expenses for the Year-To-Date against the budgeted income and expenses Year-To-Date, both as a number and as a percent.
• Some community associations even opt to put their financial information on their website to allow homeowners to view it at any time.
• The frequency of preparation may vary depending on state laws, community bylaws, and the size of the association.
• The balance sheet is essential for any HOA board member, from providing a snapshot of the association’s financial position to informing strategic decision-making.

Understanding HOA Financial Statements: The Balance Sheet

Utilize technology that will relieve growth pressure and adjust to your changing needs. CINC Systems’ SaaS CAM software removes the need for physical files, on-site computer servers, or software infrastructure ownership. To compute these numbers, reserve study specialists take the replacement cost and https://www.bookstime.com/ divide it by the sum of years the item is expected to last. Reserve funds should be able to completely pay capital component replacements or be funded as close to 100% as possible. Taking your time and gathering the necessary information is vital to producing an accurate well-formed HOA budget.